NELP, a test for oil & gas policies

Auctioning of exploration blocks in the oil and gas sector has come to be an annual affair for the Indian government, where officials, politicos and a handful representatives of some successful game-changing exploration companies go touring around the globe to display the hydrocarbon wares of the country. It is now almost a decade since the government launched this auction round christened as the New Exploration Licensing Policy. But this time around, the bidding for blocks is not just about attracting investors. The success/ failure of the auction round is a litmus test for the government and its policies. The results of this auction round is bound to throw up some interesting lessons and questions on India’s policy consistency, ability to honour contracts and its regulatory framework.

Consider this. Year 2009 has seen two major milestones as far as new oil and gas is concerned. In April, Reliance Industries began producing gas from its D6 block in the Krishna-Godavari basin on the east coast. It is estimated to pump out 80 million standard cubic metres per day of gas in four months from now, thereby doubling India’s gas production. Second, Cairn India has started production from Mangla fields in the western state of Rajasthan. This field is estimated to yield as much a 25% of India’s oil imports at its peak. The success of these two discoveries, which has now translated to additional oil and gas for India, should have been the biggest platform and a stellar year to attract investments.

But hold on, this is also the year which has seen the biggest uncertainties over policies and contracts in the energy sector. It has been a year fraught with legal battles, accusations and counter arguments, involving high stakes. There are questions being raised on contractual obligations, the independence of regulators and policies that govern the future of this sector. So much so that the success of the new finds and the additional availability of oil and gas in the country that has major macro-economic implications is somewhat lost amidst the rather ugly public spat.

The government, in particular the petroleum ministry, is having to spend time in resolving legal issues where it is a party, and answer questions raised on the consistency and transparency of policies. Even a welcome move by the finance ministry in clearing the air and extending tax holidays for future gas producers at par with oil producers (which was a grey area after Budget 2008-09 and has been a long standing demand by the industry) has failed to distract attention from the current controversy.

While the representatives of oil majors are careful not to make any adverse comments publicly, privately most of them are tracking the fallout of the current legal battle. The Directorate General of Hydrocarbons (DGH) was reported to have received letters from some of the global energy majors wherein they had expressed concern about the implications of the current public spat for the gas sector. Some have even gone on to say that the ongoing controversy, which is like a daily column and headline in every news bulletin, will end up as epitaphs to India’s oil and gas story. The fundamental question in this controversy on which the government needs to come clean is about contractual obligations. The Production Sharing Contract (PSC) is a legal document that binds the contractor and the government to certain obligations. Any move to break away the commitments or obligations will only deter investor confidence.

While it is commendable that the petroleum ministry, aided by the DGH, has launched its annual auction round under NELP-VIII, not deterred by the ongoing storm over the biggest gas find in India (showcased at almost every NELP roadshow since 2003), the final test of the pudding will lie in how many investors actually dip in to taste and eat the pudding. The much-famed road shows have already travelled across the Atlantic to the oil capital of the US in Houston where the Big Oil companies of the world take calls on when and where the money needs to be pumped in based on the future of the energy markets, the prospects of the sedimentary basins in various parts of the world and most importantly the laws/policies of the particular country. Petroleum ministry officials who attended the Houston and Calgary road shows are more than happy with the turnout and have come back optimistic that India’s oil and gas story is on track.

Private and national oil companies within India too have attended the first road show, this time in Mumbai, with the same (if not more as claimed by the petroleum ministry and DGH) enthusiasm and eagerness to bid for blocks. Going by the turnout which attracted energy majors like Exxon Mobil, Chevron, British Petroleum, not to forget by the Indian majors, Reliance Industries Ltd, ONGC, OIL, Cairn, there is every reason to believe that the legal tussle which has forced parliamentarians and law makers debate and huddle into late night meetings to ensure a fair stand has not impacted investment sentiment. So far so good. But does the story end here? Or is this the beginning of an illusive journey that may end up in dismay and disappointment.

Source: The Economic Times

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RoC gives clean chit to RIL-Reliance Petro merger

The Registrar of Companies has given a clean chit to Reliance Industries, while disposing of complaints that its merger with Reliance Petroleum would benefit only promoter Mukesh Ambani. Registrar of Companies have stated that that company (RIL) has not violated any provision of the Companies Act, 1956", said Mumbai office of the Registrar of Companies (RoC), an arm of the Corporate Affairs Ministry, after inquiring into a complaint by a little-known investor body Indian Council of Investors.

The Council, in its complaint, had alleged that RIL-RPL merger was not in the interest of the shareholders and aimed at benefiting Mukesh Ambani personally.

Even a Member of Parliament Abani Roy, who filed a complaint against the RIL-RPL merger with the RoC Mumbai, later withdrew his application stating that "merger scheme ...Is beneficial and advantageous to even an ordinary shareholder. It appears from reports that process of merger is taking place in compliance with all existing rules and regulations."

RIL and RPL are in the process of obtaining clearances for the merger scheme, which was approved by boards of both the companies on March 2, 09. Responding to queries by the RoC, RIL had clarified that "all allegations are baseless, motivated and recklessly made... At the behest of interests adverse to company and the public in general and shareholders...In particular.

"The purpose of the complaint appears to be (to) make illegal gains and profit or to attempt to somehow to delay the process of the said amalgamation of RIL and RPL". In its point-wise rebuttal to the allegations, RIL said it obtained valuation reports from globally-reputed consultants Ernst and Young (E&Y) and Morgan Stanley before deciding the share exchange ratio. under the agreed ratio, RPL shareholders will get one RIL share for 16 RPL shares.

Moreover RIL and RPL have also obtained the opinion of Citigroup and DSP Merrill Lynch which certified the exchange ratio to be "fair and just" and all applicable disclosures required under SEBI regulations and Act has been made by the Company (RIL).

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What is each party’s stand?

RIL

RIL says it is just a contractor in the KG basin gas and will need to sell gas at the government-approved price of USD 4.2 per unit. The company stands to lose close to Rs 30,000 crore if the Supreme Court asks it to honour the commitment. RIL is also involved in a similar battle with government-owned NTPC over the same issue.

RNRL

RNRL accuses RIL of putting corporate greed over national interest. It also accuses the government of alluding with RIL and harming NTPC’s interest. Overall – Anti Everybody

NTPC

NTPC is involved in a similar battle with RIL to procure gas. However, after much deliberation, the Power Ministry decided to keep the NTPC-RIL case different from the RIL-RNRL case.

Government

The government backs RILs view and says gas was a national property and sovereign asset. It strongly contends that RIL couldn’t sell it to RNRL at a subsidised rate.

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Gasonomics

As India battles to meet its ever growing energy demands, gas might just be the answer. With conventional resources depleting by every passing minute, India’s move towards becoming a gas-led economy may give a much needed lifeline to the nation. Going by the projections, the ratio is likely to shift towards gas (65:35) in the next two years and gas is expected to play a paramount role in the fertiliser and power sectors. Given that in 2009-10 the demand would be 225 million metric standard cubic metre Per Day (mmscmd) while supply would be 168 mmscmd implying a demand supply gap of 57 mmscmd there are cardinal issues that need to be addressed. Even as the finance minister proposed the introduction of seven year tax holiday for natural gas production from NELP VIII blocks, the industry remains disappointed as it was expecting a clarity on tax holiday for all blocks auctioned in NELP I to NELP VII. Further, the June 15 judgment by the Bombay High Court, asking Reliance Industries (RIL) to supply 28 (mmscmd) of KG D6 gas to Reliance Natural Resources (RNRL) at $2.34 per million british thermal unit (mmbtu) for 17 years in a private family MoU between Ambani brothers, has added an interesting angle to the gas economics of the country. The judgment brings to the fore if the Bombay High Court order derails the government gas utilisation policy to priority sector and raises questions about the right of the government to use its natural resources in larger public interest. The order also raises the question if India is heading for a dual pricing of gas production.

The perennial need

Given the paradoxes, the current gas demand and supply scenario is interestingly poised. India has a huge demand for natural gas and it accounts for around 9 % of the energy mix while globally gas accounts for 24% of the global energy mix. According to the data available with the petroleum ministry, India’s gas demand is set to increase from 179 mmscmd in 2007-08 touch 280 mmscmd by 2011-12. At consumption level of 280 mmscmd, gas would account for 14% of India’s energy mix by 2012. In 2009-10 the demand would be 225 mmscmd while supply would be 168 mmscmd implying a demand supply gap of 57 mmscmd. Also, India will continue to be a net importer of crude oil, relying on imports for...

75% of its energy needs and this dependency is expected to increase to 90% by 2025. Oil consumption is expected to increase by 3-4% per annum to 2012, implying demand of 3.23 mn barrel per day by the end of 2012. The import requirement would be 2.30 million barrels per day by 2012. Similarly, gas consumption is likely to rise to 58 billion cubic meter in 2012 from 40 billion cubic meters from 2007.

The recent Mckinsey report, Gas in 2020: A Perspective, points out, “Demand for gas in India would surge by 9 to 10% annually to about 115 to 135 billion cubic meter (BCM) by 2020.” However, the current projects indicate that indigenous production would increase to 55 BCM by 2012. But in the longer term, indigenous gas alone may not be able to fulfill India’s consumption needs and pipelines would play an important role in bridging this gap. The Iran-Pakistan-India (IPI) project (32 BCM) and Myanmar-India pipeline (12 BCM) could provide 40 to 45 BCM of gas. Any further delay in the pipeline projects would increase LNG imports between 40 to 90 BCM by 2020.

For gas to play a major role in fulfilling India’s rising power requirements and meet the power deficit important steps will have to be undertaken. To meet its power deficit of about 140 GW at peak in 2017, India would need to build 55 GW of additional peaking capacity. Hydro plans can satisfy 20 to 30 GW of peak power demand by 2017. The balance would need to be produced by alternatives like gas. The expected tariff of peaking power in excess of Rs 5.50/Kwhhr could support a gas price of around $12 per million british thermal unit (Mmbtu).

Gas consumption is also quite uneven in India. The western region comprising of Maharashtra and Gujarat and northern region consisting of Rajasthan, Uttar Pradesh, Delhi and Haryana lead in the gas usage at 42.7% and 30.5% respectively. However, southern, central, eastern and north eastern regions not only lack enough gas supply but also the necessary infrastructure. It is also evident that most of the increase in gas demand would come from power, fertiliser, city gas distribution (CGD), steel, refineries and the industrial sectors. It will replace dependence on liquid fuel and naphtha in the days to come. As of now, RIL has...

entered into gas sale purchase agreement for the supply of 18 mmscmd gas to the power sector and 14 mmscmd to the fertiliser sector. KG D6 gas would increase India’s GDP by $103 billion and it will substitute 7% of oil consumption in 2009-10 and about 10-11% in 2011-14. According to Goldman Sachs and Citibank, with current import bill at $335 billion in the current fiscal, gas is expected to save about 3%, resulting in savings to the tune of $9 billion.

More importantly, India’s current account deficit would improve by 0.20% of GDP by end of the fiscal and would improve by 0.60% of GDP by 2013-14. With the GDP at $1.3 trillion in 2010, savings would be around $2.6 billion. More importantly, during last seven rounds of New Exploration Licensing Policy (NELP), India has received investment proposals of well over $15 billion in the exploration for hydrocarbons.

Since its advent in 1999, NELP has given 68 oil and gas discoveries in Cambay Onland, North East Coast and Krishna Godavari deep-water areas, totalling over 600 million tons of reserves. In the NELP VIII, the government has offered 70 oil and gas blocks. According to the directorate general of hydrocarbons, of the 70 blocks, 24 are deep-sea blocks, 28 shallow water blocks and 18 onland blocks.

The vital links

Experts opine that poor gas transportation infrastructure has been a major hurdle in the development of a full natural gas market in India. The finance minister’s proposal to develop a blueprint for long distance gas highway leading to a National Gas Grid is quite important especially when the country can expect more gas from exploratory fields of RIL, ONGC, Cairns, and GSPC.

Akhil Sambar, Senior Manager, Ernst & Young says, “The government could look at public private partnership (PPP) model for putting together the proposed gas grid. This is all the more important when there is a liquidity crunch. IIFCL can also play a major role in financing the gas grid project.”

State-run GAIL India, country’s largest gas transporter with 7,700 km of pipelines, has launched an investment drive of Rs 18,000 crore for laying five pipelines of 5,500 km and to upgrade existing trunk lines to take fuel from gas fields and import locations to consumers. The company hopes to clock pipeline transportation revenues of Rs 5,800 crore by end of 11th plan (2011-12). These pipelines will add to its gas...

transportation capability to 280 mmscmd from around 175 mmscmd. Further, Reliance Group and Gujarat State Petronet Ltd (GSPL) have also proposed substantial investments for the establishment of gas transmission infrastructure. However, industry players expect clarity on regulatory issues relating to pipelines, open access and distribution in order to develop the gas market.

Moreover, GAIL India has set up a subsidiary for city gas distribution (CGD) and CNG corridor business. The subsidiary will undertake distribution and marketing of CNG as fuel for vehicles, piped natural gas (PNG) for domestic, commercial and industrial purposes and auto LPG as fuel for transport vehicles. The company will also invest in building CNG corridors and carry out allied retail business activities at CNG, auto LPG retail outlets within cities and along the highways. It will also strike alliances with gas producers and strategic partners for implementation of city gas projects. Sambhar opines that eventually CGD will take off as it will benefit the government and reduce the subsidy burden.

KPMG in its recent oil & gas overview states, “Given the commencement of production from RIL’s KG Basin fields, the scheduled commencement of Cairn India’s production and the potential development of the discoveries announced by GSPC and ONGC, the E&P sector is poised to see considerable activity in the near future. This could mean an increased interest in exploring India’s hydrocarbon potential by foreign players. However, the economic downturn and the consequent cut-back in capital expenditures by some players as well as some ambiguity on freedom to market oil and gas and the applicability of tax concessions for the production of natural gas could serve as a dampener.” The KPMG overview adds that the promise offered by certain acreages, particularly off India’s east coast the KG and Mahanadi Basins, means that the prospects for the growth of the upstream sector remains bright. It is expected that this is also likely to have a positive spin-off effect on the provision of off-shore services.

Given that India will continue to face gas shortage mainly on account of the ever increasing mismatch between demand and supply. The government can ease the pressure by also exploring the options of transnational gas supply. Sambar concludes “Procurement of gas from Myanmar can be taken up on a priority basis.” This will be important especially when the implementation of India-Pakistan-Iran and Turkmenistan- Afghanistan - Pakistan-India pipelines will be laid. How the government traverses the...
Source:financialexpress.com

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Gas Pricing : Govt. Approved Formula( RIL / Anil Ambani)

Government approved price at US$ 4.2/mmBtu

In September 2007, the empowered group of ministers approved RIL’s proposed formula for KG-D6
gas with minor changes. The approved price of the KG-D6 gas is US$4.2/mmBtu, which will be valid
for the next five years, after which it will be open for revision.


Gas pricing formula approved by the government

Selling price of gas (US$/mmBtu) = 2.5 + (CP – 25) ^ 0.15

Where:
SP is the sales price of gas in US$/mmBtu (NHV basis).
CP is the annual average Brent crude price for the previous FY, with a cap of US$60/bbl and a floor
of US$25/bbl.

Government’s NPV is optimum at a price >US$4.0/mmBtu

The government’s NPV depends on the investment multiple (IM) and subsidy on user sectors.

Investment multiple for the government is dependent on the price of gas as well as on capital cost.

The mathematical expression for the investment multiple is as follows.
IM = Cum NCIF / Cum ED
NCIF = Cost petroleum + Profit Petroleum + Incidental incomes – Production costs – Royalty
payments (NCIF: Net cash inflow)
ED = Exploration costs + Development Costs

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OilMin mulls defamation suit against RNRL

The petroleum ministry is considering a defamation suit against an Anil Dhirubhai Ambani Group firm for persisting with “false claims” pertaining to government revenues from Reliance Industries’ KG-D6 fields.

The ministry is contemplating seeking the law ministry’s view on slapping the suit on RNRL over a claim that government share from KG-D6 initially will be just Rs 500 crore, while RIL will earn a super-normal profit of Rs 49,500 crore.

RNRL and its executives stuck to this claim despite the government clarifying in a written statement that its revenues from KG-D6 over the life of the field would be more than Rs 84,000 crore, with a clear objective to “malign and tarnish its image”.
The file prepared for the same notes that government’s take from KG-D6 in the first year of gas production will be Rs 700 crore at a minimum output of 40 mmscmd (million metric standard cubic metres a day). At peak output of 80 mmscmd, likely next year, the government will get Rs 1,200 crore in royalty and profit share.

In any case, the earnings will be more than Rs 500 crore, they said, pointing out that royalty at the $4.2 per mmBtu (metric million British thermal unit) approved price alone came to Rs 541 crore in the first year.

It is a matter of great concern if the apprehensions in the market were to be true that the highest law officers of the country... are being used to further the interest of a private corporate behind the shield of NTPC,” Rao wrote. NTPC is fighting Mukesh Ambani-run RIL to get gas at a price of $2.34 mmBtu, while RNRL too is engaged in a separate legal battle with RIL to get gas at the same price. At the government-approved sale price of $4.2 per mmBtu, the total revenue from sale of 40 mmscmd gas in first year would be just over 10,800 crore, which would double next year when output peaks to 80 mmscmd.

As output peaks, the government’s royalty would increase, the source said, adding that government’s profit share in the initial years would be small but would rise once the contractor recovers his cost in the next 3-4 years. Industrialist Anil Ambani first made the allegations of paltry government earnings at the shareholders meeting of RNRL and his group persisted with it through an advertisement campaign. They were again repeated even after the government came out with a statement saying the total government revenues from KG-D6 field would be Rs 84,000 crore.

The oil ministry note also talks of writing to market regulator Sebi and the Ministry of Corporate Affairs on the campaign, seeking to know the source of funding and if the board of RNRL, including its independent directors had approved such expenditure.
Meanwhile, lawyers of Mukesh-led Reliance Industries termed the Anil Ambani group’s advertisement campaign as “grossly defamatory” and have written to the publications seeking details of the persons who released these ads and made the payments.
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Natural Gas: An Alternative for Diesel in Power Generation

Power sector has received much attention in recent times due to India’s rapid economic growth, which in turn requires infrastructure to support the high growth rate. As power is a vital infrastructure for the growth of any economy, demand from across the sectors has grown exponentially resulting in demand-supply imbalance.

At present, India has a total of 1,46,750 MW of power generation installed capacity. During 2007-08, the total energy supply was 664.6 billion units (BU) against the demand of 737 BU, resulting in 10% deficit in total demand-supply of energy in the country. Peak hour energy shortages amounted as high as 14% during the year.

As a result of increasing power shortages, consumers are forced to generate their energy requirements on their own. Diesel based power generators have been the most preferred mode of electricity generation over the years. Currently, the total installed capacity of diesel-fired generators used by residential and commercial sector is estimated to be around 15,000 MW, which is nearly 10% of the total installed capacity of the country. Exhaustive use of diesel for power generation has pushed the demand for diesel in recent times. During the first quarter of FY2008-09, power sector has witnessed increase of 152% in the demand of diesel, to a total requirement of nearly 53,000 tonnes. However, limited domestic availability of oil coupled with growing environmental concerns and rising petroleum product prices have forced the consumers to look for alternative for diesel.

With the initiation of gas market and expansion of gas distribution infrastructure in the country, natural gas has the potential to change the way consumers generate electricity during peak hours. Consumers also have an alternative fuel for electricity generation, which is much cheaper as compared to diesel. According to CRISIL Research Power Annual Review, the cost of electricity generation for 1 MW or above capacity units, natural gas is almost 57% cheaper and it costs Rs 2.1 per unit as compared to Rs 4.9 per unit from diesel.

The total capacity of bigger diesel-fired units, (i.e. 1 MW or above) amounts to 12,000 MW in the country. Assuming that these units are operational at 50% plant-load factor, the total energy generation would be over 52 BU with aggregate cost of around 25,750 crore. If the same amount of electricity is being generated from natural, the total cost of generation would be around Rs 11,000 crore, resulting in savings of Rs 14,750 crore thus making natural gas an undisputed choice over diesel.

Even for less than 1 MW diesel-fired units, which are mainly used by households, offices and malls, the cost of power generation from natural gas would be 75 % cheaper (Rs 2.5-3 per unit) as compared to Rs 11-12 per unit from diesel presently. Assuming that this capacity operates at 10% plant load factor to supply the peak demand, the total energy generation would be around 2.6 BU with the total cost of Rs 2,890 crore, whereas, same amount of electricity generation would cost around 657 crore from natural gas at Rs 2.5-3 per unit. Thus, use of natural gas will save as much as Rs 2,233 crore. The total savings on account of substitution of diesel with natural gas for power generation would be around Rs 17,000 crore.



Moreover, replacement of diesel with natural gas for electricity generation also becomes imperative in the wake of burgeoning losses on sale of diesel every year. The total under-recovery on the sale of diesel during 2007-08 amounted to Rs 35,000 crores while during FY2008-09 diesel subsidies is estimated to be around 95,000 crore. Considering the fact that almost 15% of diesel is being used for power generation out of the total diesel consumed in the country, substitution of diesel with natural gas can save another Rs 14,250 crore approximately from the outgoing subsidy. Cumulatively, the total savings by utilizing natural gas instead of diesel can amount to Rs 31,250 crore, which can be utilized for adding another 9,000 MW gas based power generation capacity or two ultra-mega power projects with a total capacity of 8,000 MW.

Apart from cost benefits, natural gas can be easily transported to the point of consumption whether houses or small industries through pipes and does not need to be stored. Unlike liquid fuels, natural gas is environment friendly product and does not either affects the health or creates damage to house or equipments. Natural gas is already powering gas-fired turbines in the country for large scale generation and posses the potential to replace the diesel for peak hour energy demand in distributed power system through micro gas turbines.

Currently, the country produces 88 MMSCMD of gas domestically. Gas supply scenario is likely to change dramatically with the commencement of production of gas from RIL’s KG Basin. The gigantic field of RIL is likely to produce 40 million standard cubic metre of gas every day (MMSCMD) initially, which is expected to jump to 80 MMSCMD during the peak production. Additionally, major discoveries by GSPC and ONGC have also boosted the domestic supply prospects of natural gas. In addition to this, the LNG liquefication capacity in the country, which stands at 7.5 MMTPA right now, is likely to jump to 27.5 MMTPA (equivalent to 110 million standard cubic metres per day) during next five years. Supply from both the source can fuel the gas requirement for substituting diesel for power generation.

The use of natural gas, in place of diesel can positive environmental effects. Apart from that, it can have large monetary advantages. The money this saved could be further used for adding extra base load capacities, which can help the country bridge the demand-supply mismatch to some extent.
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Marching towards gas based economy – A pipedream

Introduction
Natural gas is regarded as the clean fuel of 21st century and is emerging as a major fuel alternative all over the world. In India at present natural gas is an insignificant component in overall energy mix with a meager share of 7%. According to a CRISIL report, OECD countries gas use for residential heating and cooking on average amounts to nearly 25% of the total consumption. Even in Pakistan, India's immediate neighbor, this figure is as high as 25%. By contrast in India city gas contributes a meager 3% of total. Gas consumption while primarily being used in power & fertilizer sectors that together consume nearly 75% of all production.
However, natural gas consumption is set to have annual growth rate of 5.9% in India during the next 25 years driven by robust GDP growth coupled with rising per capita income and infrastructure development.
Globally in developed countries, natural gas finds usage in space heating, air conditioning and in combined heat and power applications. Combined Heat and Power applications have superior efficiency levels than the traditional gas fired open/combined cycle applications. As income levels rise and lifestyle needs change, there is a demand for fuels which can offer uninterrupted power with low levels of Green House Gas emissions at a lesser cost.

The growing level of urbanization is likely to increase the energy consumption intensity in India. The urban clusters would include offices, commercial establishments, housing complexes and ITES services. These consumers require convenience of usage, incessant energy supplies for various applications in air-conditioning and heating. Currently the city gas distribution networks in India largely cater to the needs of the transportation sector and for heating applications in households, commercial and industrial establishments. However in the future stimulated by increased availability, natural gas would find applications in the emerging market segments of air conditioning, heating and decentralized generation and distribution of power.
A new paradigm
Technological developments are creating new product platforms altering the delivery channels across industries. The last mile is often the most rigid to achieve in the supply chain of most industries, more so for the traditional energy industry. Over the next few years, India will accelerate its move to being a gas-based economy, propelled with the discovery and development of giant offshore gas fields, and the expansion of LNG terminals on the west coast of India.
Natural gas, recognized as the fuel for the 21st century, is already powering gas-fired turbines for power generation and feedstock for the fertilizer industry. Its impact in the National Capital Region as a fuel for public transportation is now successfully completed while more projects are under implementation in more than half-a-dozen states, including Uttar Pradesh, Rajasthan, Madhya Pradesh, Maharashtra, Karnataka, Kerala, Andhra Pradesh and West Bengal.
The industry players have aggressive plans to increase coverage to over 200 cities, up from the current level of 20 odd cities. Homes on the gas grid could also use new fuel-cell technology to generate their own gas-based electricity in the same way that they currently use diesel-powered gensets.
Why natural gas
The stage is now being set for natural gas to replace LPG as a fuel for households and for the development of CNG as a preferred fuel over petrol and diesel for city transportation requirements. Over the next five years, it is estimated that City Gas Distribution (CGD) networks could require investment of close to $50 billion (Rs 2 trillion). The ingredients needed for this make-over are slowly falling in place. Savings may be about a third, compared to what LPG (liquefied petroleum gas) costs, it is estimated.
The predominance of Natural Gas as an energy for city energy purposes internationally is primarily due to three reasons. Comparing Natural Gas with fuels against which it will be competing in various customer segments within cities namely FO/LSHS FO/LSHS for industrial segment, Petrol/Diesel for transport and LPG for commercial and domestic segments, this can be clearly inferred. In the transport segment (Refer Table 1) the fuels are compared based on running cost; CNG is almost three times as economical as the traditional fuels.

For the industrial, commercial and domestic segments the fuels are compared on the basis of total expenditure incurred to create one million Kilocalories of energy. For industrial customers Natural Gas offers a 20% cost benefit in energy terms while for the domestic segment Piped Natural Gas (PNG) presents a savings opportunity of almost 17% on the monthly bill.

According to an industry report in USA, about 52 percent of all households depend on natural gas as their primary heating fuel while only 7 percent of U.S. households depend on heating oil for winter fuel while a third of Britain's electricity is generated by gas-fired power stations. Thus power generation from natural gas need encouragement and a huge potential does exists for power generation from gas.
The Dhirubhai gas field on the eastern coast was one of the largest discoveries contributing significantly towards augmenting the energy security of the country. The discovery also will help in bridging the gap between demand and availability of gas, which was otherwise to be met through importation of gas through pipelines from Iran, Bangladesh and Myanmar – countries perennially affected by geopolitical issues.

The migration of the households and the transportation sector from refined products to natural gas is an important transition—the supply chain is asset intensive. It is time for the regulatory and fiscal framework to promote the much needed investment and provide a progressive and stable financial regime - a few simple initiatives from Government would be most valued at this stage of evolution of the industry.
Drivers of natural gas
Economics: On an energy-equivalent basis, natural gas costs considerably lower than the LPG, Gasoline and Diesel. Natural gas is a clean-burning fuel that reduces vehicle maintenance with added advantage is that it can not be adulterated or siphoned-off from a vehicle.

Emissions: Emissions from CNG vehicles is lower than those from petrol or diesel vehicles. For instance, CNG emissions of carbon monoxide are approximately 70% lower, non-methane organic gas emissions are 89% lower, and oxides of nitrogen emissions are 87% lower. In addition, CNG also emits considerably lower amounts of greenhouse gases and toxins then petrol vehicles.

Safety: Vehicles that run on clean burning natural gas are as safe as vehicles operating on traditional fuels. Being lighter than air, CNG, unlike gasoline, dissipates into the atmosphere in the event of an accident. CNG fuel systems are “sealed,” which prevents any spills or evaporative losses. Further, natural gas is not toxic or corrosive and does not pollute ground water.

Trigger fuel for switching by consumers



Conclusion
The rapid growth of economies and impact of increasing oil princes, especially for countries such as India and China , have compelled them to look for more energy sources. So driven by these factors natural gas is going to play a dominant role in the near future as coal played in 19th century and oil in 20th century. And it is matter of years that gas will overtake oil as the most preferred fuel of the 21st century.


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RIL agrees to CAG audit as 'exception'

RIL has agreed to a special audit by CAG proposed by the government, thus setting high standard for transparency and corporate governance. Mukesh Ambani led Reliance Industries Ltd has stepped forward and told the Government that it is ready and open to inspection by any of its agencies, including CAG, for the expenses it has incurred on discovering and developing the KG-D6 gas fields. While Anil Ambani has been accusing RIL of gold plating, it has so far failed to substantiate any of its frivolous accusation.

One of the issues raised through the public campaign in national and local dailies relate to the capex increase from Rs 12,000 crore to Rs 45,000 crore, which was described as a windfall profit to RIL.

The malicious intent of the ADA Group statement is evident, in the way Anil Ambani does not even mention that this increase was associated on a substantial expansion in the scope of work, let alone devastating market conditions that set in as crude prices broke all known barriers at the time of execution of the project. Goldman Sachs has also stated in its report that the development cost was the lowest in the world and compares favorably to any other project in India.

Mukesh Ambani's Reliance Industries Ltd has agreed to a special audit by the comptroller and auditor general (CAG) of its Andhra offshore (KG-D6) contract, but said it hopes this will be a one-off case. In a letter conveying its `no objection' to such an examination by the government's auditor, the company told the oil ministry it hopes "this is a one-time exception which does not create a precedent for the future".

Minutes of the meeting notes RIL stating that though the PSC (production sharing contract) does not allow special audit, it was willing to accept a CAG audit for the ensuing year but not 2006-07. It said it did not understand the "scope" of such an action "since audit upto 2006-07 has already been conducted by the government-appointed auditors and RIL has been supplying all information required by DGH from time to time".

The government officials responded by telling RIL that the special audit has been ordered under Section 1.9.1 of the accounting procedures in the PSC. Asked for its reaction, RIL said, "The inference that RIL has agreed for a special audit under the insistence of government is totally incorrect and unwarrated. There is no difference between the letter by RIL and the minutes as far as RIL's position under the PSC is concerned.

However, RIL has accepted the audit voluntarily, as a one-time exception without creating any precedence, for the sake of transparency and cooperation with the government. This is clearly reflected in the minutes and the decision in the meeting which was confirmed by RIL in its letter."

RIL wrote the letter on August 17 after a meeting with officials from the ministry and Directorate-General of Hydrocarbons. The meeting was called in the backdrop of CAG denying a recent posting on DGH's official website claiming the auditor has completed audit of the Andhra offshore field. CAG also said it was having problems with accessing books of oil/gas field developers, although it did not point out RIL.

The government had in November 2007 ordered a special audit of eight contracts, including RIL's, which involve substatial financial stakes for the government.

Source: Economic Times

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Natural gas reforms key to energy security

This way, gas prices all over India will converge, barring inherent transportation costs, a tendency which is already observed in the US gas market which is fully liberalized. This will also vastly improve the bargaining power of our country in organizing large-scale gas imports, whether in the form of LNG or gas through pipelines.

India is going to be the “next growth miracle” of the global economy, and I do see that in the next decade or so, with “better governance and appropriate policies”, it can, in fact, become the fastest growing economy in the world.
Yes, my friends, you must have noticed that I slipped in the words “better governance and appropriate policies”. Inter alia, better governance means greater transparency and fairness, and an efficient justice system in terms of equitable access and speedy delivery.

Amongst all the policies, reforms of the energy sector will be decisive for accelerating growth as well as for promoting economic security. Within the energy sector, however, I would argue that it is natural gas which will be of strategic importance to our country and, hence, the need for a new natural gas policy.
What oil was for the 20th century, natural gas will be for the 21st century. This is due to several compelling reasons.

Worldwide reserves of natural gas at current production rates are of the order of 60-plus years, about 20 years longer than crude oil. This does not take into account non-conventional sources of natural gas such as shale gas, gas hydrates and potential as a result of technological developments to convert coal into natural gas. Once these become technically viable, reserves could increase exponentially.
Compared with the petroleum products, natural gas burns cleanly and efficiently in any fuel application.

The international price of natural gas on heating value basis, including transportation costs, has always been significantly lower compared with petroleum products. For the last decade, it has been nearly half. Almost in every application, natural gas can substitute petroleum products. However, the success of natural gas substituting petroleum products in the transport sector has been somewhat less effective. Some countries with abundance of natural gas, such as Russia, have as much as 50% share of natural gas in the commercial energy basket, compared with a world average of about 25%.

Finally, the availability of natural gas is widespread geographically or less concentrated geographically than crude oil and, thus, enhancing energy security and market stability. This will become an issue of growing importance for our country.
The present policy approach for gas seems to be derived from a mindset that India is relatively “gas-short”, and this scarcity is attempted to be met through rationing or, in other words, allocating available gas through quantitative allocation with its consequent underpricing. Ironically, this approach only reinforces the shortage phenomenon as this discourages supply and enhances demand as prices are not allowed to play their full role.

This policy, which creates “rent” in the gas markets, gets reinforced through the “political economy” factors as a number of important players share these rents. The other conceptual shortcoming of the present framework is that when people think about gas, it is thought of as something distinct from crude oil, while, in reality, both being hydrocarbons, they are close substitutes. The fact that they are close substitutes is vividly reflected by how closely they are tracked in terms of prices in the international markets.

As buyers and sellers usually adopt long-term contracts, our own policies need to be stable and the authorities should always honour explicit or implicit commitments as this reduces policy uncertainties and encourages buyers and sellers to enter into long-term commitments.

The current procedure for determination of gas pricing being somewhat non-transparent, there is an element of uncertainty and enormous variance in gas prices in the same markets in India. For instance, both in Gujarat and Andhra Pradesh, among consumers, gas prices vary by almost 200%. Such price variation ironically discourages anchor customers such as the fertilizer and power sectors, creating further difficulties for making any large investments required for laying the pipeline infrastructure.
In other words, the present pricing policy framework is not leading to more rapid development of the natural gas sector in India—whether in terms of creating supply or demand.

How do we achieve this paradigm shift? Firstly, and most importantly, the policymakers will have to change their perspectives or their mindset by recognizing three important factors. Firstly, both oil and gas being hydrocarbons are close substitutes and these markets move in tandem internationally where the infrastructure for gas is well developed. Secondly, although oil and gas are both hydrocarbons, one is liquid and the other gaseous and, therefore, requires different logistics in terms of supply infrastructure. Hence, these two energy infrastructures create different market structures, which has some regulatory implication.
The third factor is that India is potentially a “gas-abundant” country. I am using the word “abundant” compared with availability of oil and compared with the present projections of demand for gas in the next 20 years. Given the right incentives for producers, it is possible to foresee India as achieving over a decade or so gas output level of more than 500 million standard cu. m per day (mscmd) from current supply level of 120 mscmd. These supply projections may be somewhat speculative, but I would argue these are not without basis.

I have talked to a number of knowledgeable experts, and I think it is possible to argue that from the current gas reserves of 30 tcf (trillion cu. ft), we can increase the reserves to more than 120 tcf within the next decade.
Mind you, I have not added to these reserves either the shale gas reserves or the gas supply possibilities from in situ gasification of the country’s deep coal reserves.

All potentially large gas reserves can become a reality only if we allow incentives to the producers. This requires that our exploration contracts should have transparency and complete stability.

In recent years, there have been instances of unilateral deviations from the stated policy and practices regarding the production sharing contracts, and this needs to be eschewed if we want to make any radical gains in finding new gas which is indeed there to tap. Exploration and production of hydrocarbons is inherently hugely risky, and such policy instability makes it even riskier—thus, discouraging the oil companies.

In addition, we should give freedom to producers to market their gas, provided the price determination is at arms-length and on a transparent basis which avoids transfer pricing or deliberate underpricing. This would mean, inter alia, long-term prices to be linked to international crude oil prices providing transparency like in our liquefied natural gas (LNG) contracts.

As I mentioned, natural gas is different than oil because of its transportation requirements. Large pipelines are required to transport gas, and once such pipelines are created, the market structure can become locally monopolistic. To create a competitive national gas market, we require a national gas pipeline grid, what I call a Natgas grid.

But working of this Natgas grid will have to be supervised by a regulator for ensuring transparency, competition and safety. This inter-state network has to work as a common carrier, and all inter-state pipelines would be built either through public or private sector companies, where construction, sizing, routing and pricing will be done on an open tender basis in consultation with the regulator.

One possible way of promoting gas markets could be that even where the cross-country or inter-state pipelines are under the private sector, 25-30% of capacity of such pipelines can be “crown” capacity, which can be either on “carried interest” or “participating interest” basis, and such capacity will be available to any buyer or supplier of gas with the toll charges which are determined by the regulator. This will enable the development of a gas market in India where third-party suppliers and buyers can use the common carrier.

This way, gas prices all over India will converge, barring inherent transportation costs, a tendency which is already observed in the US gas market which is fully liberalized. This will also vastly improve the bargaining power of our country in organizing large-scale gas imports, whether in the form of LNG or gas through pipelines.

source: Livemint
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ADAG's charges all gas and a judicial impropriety : Govt

Terming the advertising campaign by the Anil Dhirubhai Ambani Group (ADAG) ‘most unfortunate’, the government in a statement released today said the group’s allegations were incorrect. It advised the group to exercise “restraint in the matter of projection of facts, as well as inferences”, especially since the matter was before the Supreme Court.

A strongly worded government note said that in view of the fact that the matter was sub-judice, the government issued “the limited clarification” so that there is no element of public misinformation. “The government is committed to upholding the rule of law. It cannot enter into needless and unnecessary controversies,” said the note.
Following the government response, J P Chalasani, CEO of Reliance Power (an ADAG group company), in a conference call stuck to his group’s stand and said the newspaper advertisements put out by ADAG were correct.

The government response was vetted by Solicitor General Gopal Subramanium after an informal ministerial group discussed the matter last evening, said a senior official. The group comprises petroleum minister Murli Deora, power minister Sushilkumar Shinde, law minister Veerappa Moily and finance minister Pranab Mukherjee.

On ADAG’s allegation that the ministry of petroleum is seeking to cause a loss to NTPC, the release stated that the ministry “is committed to protect the interests of NTPC by all means”. But Chalasani, in his response, sought to again raise the issue by stating that “we (the group) trust the petroleum ministry will take all steps to now ensure that NTPC gets 12 million standard cubic metres a day from RIL at a price of $2.34/mbtu for 17 years for its Kawas & Gandhar expansion projects”. ADAG’s claim to D6 gas at $2.34 is linked to the NTPC price.
Countering the Anil Ambani group’s criticism on loss of revenue, the government note said, “An allegation has been made that in the contract of the KG-D6 Project, the government would get only Rs 500 crore as against the contractor’s take of Rs 50,000 crore. This allegation is incorrect. Government expects to realise about Rs 84,000 crore. The recovery of the government would increase towards the latter part of the project.”

The government has also defended the revised capex amount of the project. “In November 2004, the estimated capital expenditure was $2.45 billion, which was revised in December 2006 to $8.83 billion. The said increase has taken place on account of various factors, including increase in reserves by over two and half times, production facilities by three times, peak production by two times, increase in number of wells, field life and inflation in equipment and services industry,” it said.

While ADAG has been claiming that the gas price of $4.2 is high, the government today said the price formula is based on the principle of ‘arm’s length’ and in accordance with the provisions of the production sharing contract. The price formula was approved on September 12, 2007, which leads to a price of $4.2 per mBtu. The formula is fixed for five years.
Source: B.S
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Electrifying India in a decentralized way

Overview

India is one of the fastest growing economies in the world, which is expected to grow at the rate of over 5% annually for the next twenty fives years. As growth demands energy, demand for power has risen rapidly with economic expansion, which has resulted into supply and demand mismatch. Energy Information Authority (EIA), the statistical agency of the U.S. Department of Energy, estimated that India was the world’s fifth largest consumer of energy (3.3 % of the world’s total annual energy consumption) in 2006, even though India’s per capita energy consumption (600 Khw) is low as compared to developed countries.

Power is one of the critical components of any economy’s infrastructure and without its development, economic growth could be hindered. During 2005-07 the demand for power grew at CAGR of 16 percent per annum according to Ministry of Power. In the year 2007-08, India’s total installed capacity stood at 130,000 MW with total generation of 80,000 MW (approx.)

Electricity generation mix is heavily dependent on coal /thermal at around 70% with hydel power contributing to 26%. Due to burgeoning demand and transmission and distribution (T&D) losses, India has been witnessing 11% peak hour shortage and overall 7% average shortage. Also, T&D losses are extremely high in India as compared to developed countries and world’s average. In developed countries such as USA and Japan, T&D losses vary between 7% -8% of total electricity generation, whereas in India it varies between 35% to 50%.

With technology developments in oil and gas sector, India has options to produce sustainable and efficient way of producing electricity through decentralized system from natural gas without incurring substantial T&D loss.

Going forward, Indian consumers will not only have natural gas for domestic cooking through pipeline but also they will have an option to produce electricity at a lower cost. Consumer will not have to depend on grid for uninterrupted supply electricity. This also means more independence and control over energy consumption.

Distributed Power – Empowering Consumers

Natural gas recognized as the fuel for the 21st century with long track record of developing and expanding the market potential for independent natural gas power generation in developed nation especially in USA, Japan and Australia. It has a history of being a swing factor for new generation capacity addition if coal and nuclear are found to be less desirable or expensive.

Considering huge demand of electricity and availability of gas to households, unique opportunities exist for generating electricity and satisfying on-site customer energy needs using smaller distributed generation power systems. In India natural gas is already powering gas-fired turbines for large power generation. With advent of technology, electricity can also be produced by using micro gas turbine at home from natural gas with ownership and operation resting with the private owners. Currently, the main attraction of microturbines is the promise of very low emissions coupled with high efficiency in combined heat and power (cogeneration) service.

For instance, industrial consumers in developed countries have began some time ago to exploit the benefits of on-site turbines for cogeneration and select electricity needs, applications for consumers is beginning to be observed in notably in Japan and South Korea. A Korean Apartment complex for instance is powered by micro turbines manufactured by a firm called Capstone.

Efficiency and Productivity – Major benefits of Distributed Power

If electricity generation cost is compared from the systems, the cost under centralized (grid) and decentralized system is similar but T&D cost and losses are high in centralized system leading to high retail tariff as compared to decentralized system. Thus the fundamental appeal of decentralized generation will be to improve the affordability of fuel prices as it avoids excessive T&D tariff and loss currently applicable by bypassing the grid.


Dynamic transformation in energy markets and developments in technology can converge to place natural gas generator sets on the forefront of energy consumption


Source: Company Reports / *Price per Unit in Rs

Besides saving the T&D losses, distributed generation will see active interest because of the benefits it delivers to utility companies whose transmission and distribution capital expenditure (T&D) are constrained. Thus by using distributed power system placed close to the point of use substantial T&D investments can be saved while protecting customers' reliability and power quality. Moreover it will also save a substantial cost the government incurs as transmission and distribution loss.

The discovery by Reliance Industries of a huge gas field with initial production of 40mmscmd and reaching 80mmscmd by June 2009 in the Krishna-Godavari basin opens up tremendous possibilities for use of natural gas for multiple purpose such as domestic cooking, instant hot water and for generating electricity. Reliance Industries is already working on setting up distributed power supply where some Reliance Retail outlets would come in Delhi. Reliance's find, when it is tapped, is bound to change the way energy is consumed.

Natural gas is the fastest-growing fuel of choice in several western countries with rigorous environmental regulations. However, the potential of natural gas has never been fully exploited. By 2011-12, total availability is expected to increase at a CAGR of 22% to 337 mmscmd, out of which 255.22 will be produced in India and rest 81.38 mmscmd will be supplied from LNG terminals, which are coming up in different parts of the country. State-owned Gujarat State Petroleum Corporation (GSPC) holds an estimated 20 Tcf of natural gas reserves in place at the KG-OSN-2001/3 block in the Krishna Godavari area while ONGC announced in December 2006 that it had found an estimated 21 to 22 tcf of natural gas in place at the KG-DOWN-98/2.

If this radical concept of distributed power is implemented, it will lessen reliance on external energy sources of energy. The Government can also hope for additional revenues in the form of taxes and cess from the gas exploited while at same time trimming the loses from transmission and distribution currently incurred.

Moreover restructuring in the electric generation industry can open the prospect for even greater opportunities for non utility generators. However, it requires appropriate regulatory and fiscal framework to encourage the much needed investment and a progressive and stable financial regime - a few simple initiatives from Government would be most valued at this stage of evolution of the industry i.e. creating sustainable electricity through decentralized system.

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Anil Ambani Vs RIL: Govt. will earn $17.8 billion( 85,440 crores) from K G D 6

Estimate debunks ADAG claim of meagre Rs 500-crore gain
Amid allegations from the Anil Dhirubhai Ambani Group (ADAG) that the government was losing out on revenue from the Mukesh Ambani-controlled Reliance Industries Ltd's D6 field in the Krishna-Godavari basin, the Ministry of Petroleum and Natural Gas has estimated that the government would earn $17.8 billion (85,440 crores) over the expected 13-year life of the field.
This is significantly higher than the government revenues of Rs 500 crore that ADAG has been claiming in an advertising campaign that it launched on August 17.
The exercise marks the first time the Directorate General of Hydrocarbon (DGH), the upstream oil regulator, has worked out such an estimate. The exercise is not carried out in the normal course for oil or gas fields.
The estimates are based on the government-mandated price of $4.2 per million British thermal units (mBtu) which is valid for five years ending March 2014 but may go up if prices of the benchmark Brent crude goes up.
ADAG is currently fighting a court battle against RIL for gas from the D6 at $2.34 per mBtu for its power plant at Dadri, on the basis of a family agreement signed in 2006. State-owned power firm NTPC is fighting a separate court case on the same issue.
A senior petroleum ministry source said the government is estimated to earn $9.2 billion as profit petroleum, $6.5 billion as taxes and $2.1 billion as royalty, making for total earnings of $17.8 billion (85,440 crores) over the field life of 13 years.
RIL's own profit at $12.2 billion will be less than the government revenue, though it will be recovering cost through sale of gas as "cost petroleum".
ADAG's advertising campaign has questioned a revised capex plan for the D6 block, which, it claims, will help RIL make “super-normal profit of nearly Rs 50,000 crore, while the government gets only Rs 500 crore”.
The ADAG claim of RIL profit roughly equals DGH calculations but its estimate of government profit is significantly below the DGH figure. “The two figures are incomparable and far from reality,” the official said.
Defending the increase in production costs, the official also said the capex plan was revised from $2.5 billion in November 2004 to $8.8 billion in December 2006 since the estimates of gas reserves had increased from 3.8 trillion cubic feet (tcf) of gas to 10.3 tcf. Accordingly, the number of wells, the peak production and field life of the block was revised.
Peak production was doubled from 40 million standard cubic metres a day (mscmd) to 80 mscmd. Moreover, the cost of services like drilling, rig hiring, etc had moved up between 2004 and 2006. “The capex plan is just an estimate and RIL can only offset the actual expenditure from revenues. Moreover, the actual expenditure is subject to audit,” he said.
The official also said the petroleum ministry does not want NTPC to suffer as a result of this legal battle between RIL and RNRL. “We are with NTPC, whose claim to gas at $2.34 flows out of its contractual arrangement with RIL. It has nothing to do with this (RIL-RNRL) dispute,” he said.
NTPC's dispute is over a tender that RIL had won, whereas the RIL-RNRL dispute is over a commitment in a family agreement. The petroleum ministry has sought that the latter, insofar as it deals with gas should be declared "null and void".

Source: Business Standard
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Anil Ambani: AD CAMPAIGN

Ad campaign sullies ADAG’s corporate image; Statements made are “fraught with risk” since the matter is sub judice

The Anil Ambani group continued to keep up its media offensive. Newspaper advertisements questioning the government's role continued to appear in the mainstream newspapers across the country. These advertisements come just before the case is to be debated in the Supreme Court on 1 September, the endgame in a long three-year legal battle.

Commenting on ADAG advertising campaign, Soli Sorabjee, former Attorney General of India, said there is something very inappropriate about this and "Anil Ambani's media offensive will not affect the court's judgement." However, added that the ADAG spat may be an attempt to influence the policy makers.

He feels the government should not respond to ADAG's media offensive and should only repond to the affidavit and suggest that NTPC should not join Anil Ambani's battle in the press.

Meanwhile dismissing the advertisement campaign unleashed by Anil Ambani group against Mukesh Ambani-led RIL and Petroleum Ministry, Law minister Veerappa Moily on Wednesday said the government was "not interested" in such a move.

"We are not interested in any advertisement campaign by any private party and will not comment as the matter is sub-judice," Moily said emerging out of meeting a ministerial group formed to supervise the government's stand on the gas dispute in the Supreme Court.

The release of the advertisements absolutely demonstrates the fact that Reliance Natural Resources Ltd (an R-Adag firm) is indulging in an orchestrated campaign and it’s an deliberate attempt to bring into public debate and prejudge the issues that are pending adjudication before the honorable courts.

Here is a verbatim transcript of the exclusive interview with Soli Sorabjee on CNBC-TV18.

Q: You have seen what has been going on. The ads are one part of it. It has probably been a public slugfest even as the Supreme Court is yet to take up the matter in right earnest on September 1. How are you reading this entire public spat so to speak in a court proceeding?

A: To be quite honest, I have not really seen it, but I gather from what you are saying that the Anil Ambani camp is projecting its point of view and is sort of advocating what I suppose it would be submitting through its counsel before the Supreme Court.
I don’t know whether you asked me whether that amounts to contempt or whether it is otherwise inappropriate and improper. I don’t think it would amount to contempt because it doesn’t really obstruct the administration of justice. I suppose the idea is to influence the people in government, people in higher places about what is going on.
But in any case, even if it is not contempt strictly speaking, it is a criminal offence. I think there is something very inappropriate about this.

Q: You are saying this does not actually amount to contempt of court but it is improper. Also, this is not something new that has been spoken about by the Anil Ambani camp because this was a statement read out by Anil Ambani at the RNRL AGM about three weeks ago, pretty much the same fact being put out there as part of this advertising campaign. What sort of a precedent does this actually set to your mind, and is this a dangerous precedent?
A: The essence of contempt is that it obstructs the administration of justice. It seriously interferes with the fair dispensation of justice. I don’t think Anil Ambani’s, as you say; media offensive is going to at all affect the Supreme Court judges, judges are made of sterner stuff. They are not going to take any notice of it. Even if they take notice of it, they will disregard it.
They will only be concerned with what his counsel submits before the Supreme Court, which I suppose maybe pretty well the same thing what he is saying in the press. I have got a feeling that he is doing this in order to influence the decision makers, who I believe are just viewed as a meeting tomorrow, there was one today, tomorrow. That seems to be his idea. That doesn’t amount to contempt in my opinion.

Q: As a former Attorney General of this country what should the government response to your mind be, because this is an empowered panel setup by the PM? Should the government in your opinion be responding to this sort of a campaign?
A: I think the government should ignore it and not give it importance.

Q: Once again we don’t know whether the government, there were reports or there were speculation that statement of some sort will actually be put out by the government. That hasn’t happened this evening. We understand that another meeting is possibly going to take place tomorrow of this panel. Do you think that this merits some sort of a response from the Petroleum Ministry at this point in time?
A: I don’t know what exactly is said. Responding would mean what the government should respond to what he stated in the Supreme Court by view of an affidavit or behalf of written submissions – that’s where the government should respond through Solicitor General or through the officers – not respond to him in the press. Why should the government join this if I may say so – a very distasteful spectacle of trying to stash issues in the press which would be ultimately determined by the Supreme Court? This is for public consumption as far as I can see and as I have said it is rather very inappropriate.

Q: There has also now a question mark, of course there is a separate case that is on between RIL and NTPC, now there have been questions raised on whether NTPC should actually join the fight on between RIL and RNRL – whether NTPC should actually file a special leave petition. In your assessment would that be an appropriate thing to do at this point in time given the fact that the RIL-NTPC case is continuing to run in another court?
A: That is something NTPC will have to decide on that issue depending on what exactly is involved in the case. I would say generally speaking, NTPC or anyone should not join the Anil Ambani battle in the press – I am very clear about that. It is in the court, join the battle in the court, fight your forensic battle and not media battle.

Q: We’ve also seen a curious case where the government actually in the Bombay High Court withdrew its affidavit – the Supreme Court they are actually now trying to amend the original SLP. It is also a curious case of somewhat back and fourth on the part of the government. How are you reading the government’s response to this entire matter?
A: It is not for the first time that the government has changed its mind. It happens. It takes its stand at a particular point of time and may be on reconsideration of things it should revise the stand and that can happen. It has happened when I was Attorney General – very often the department on instructions asks the Law officers to take a particular stand which was realized later on that is not the correct stand and they withdrew it. In the Ram Setu matter it has happened to give you one example. So don’t read much into that. It happens because there are different opinions, different perceptions of what should be said or should be done and if it is not done and if you do something else – don’t make inferences of any collusion with one side or the other – that won’t be correct. At the most one can say it was inefficiency in the first place – that’s the most charitable explanation.



Source: www.moneycontrol.com

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Anil Ambani firm using NTPC to get cheap gas: Dhawan

Dhawan yesterday wrote to Shinde on advertisements issued by Reliance Natural Resources (RNRL) accusing Oil Ministry of compromising NTPC's interest in a case on gas pricing with Reliance Industries.

Senior Congress leader and Rajya Sabha MP R K Dhawan has cautioned Power Minister Sushilkumar Shinde against falling prey to tactics of an Anil Ambani Group firm, which he alleged was using power PSU NTPC as a front to fight Petroleum Ministry.

NTPC has taken RIL to court seeking implementation of a gas supply contract at a price of $2.34 per mmBtu, while government has approved $4.2 per mmBtu as price for RIL's KG-D6 fields.

"RNRL is using NTPC as a front to achieve its objective to receive preferential access to gas at a subsidised price, resulting in government to lose an amount of Rs 35,000 crore," Dhawan wrote to Shinde.


Despite repeated attempts, Dhawan could not be contacted for comments, while no comments could be obtained from RNRL.

Anil Ambani Group is citing a family demerger agreement to seek from RIL more than one-third of KG-D6 peak output at rates 44 per cent lower than the government approved price. The $2.34 per mmBtu price, it says, is the same as what RIL had bid in a NTPC tender in 2004.
Source:PTI
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RIL:Open to probe by CAG

Reliance Industries has told the government that it is “ready and open” to scrutiny by any of its agencies, including CAG, for the expenditure it has incurred on discovering and developing the KG-D6 gas fields.

At a meeting called by the petroleum ministry on the issue of Comptroller and Auditor General (CAG) of India auditing the books of private operators, the company stated that it had nothing to hide and was open to scrutiny, a government official present at the meeting said. The government had in 2002 asked CAG to audit Production Sharing Contracts like the one for KG-D6 block with RIL, signed under the new exploration licensing policy, but the premier auditor had then stated that its charter neither permitted audit of private accounts nor did it have the manpower to do so.

http://www.deccanchronicle.com/business/open-probe-cag-ril-528

Clean up the energy mess

In two weeks’ time, the Supreme Court will start hearing one of India’s landmark cases: the lawsuit between two of India’s richest men, Mukesh and Anil Ambani, on
whether natural gas, a fuel produced by the former should be sold to the latter and on what terms.

Why should a lawsuit between two wealthy and estranged brothers over a deal that they signed four years ago, make news? The lawsuits between Mukesh-controlled Reliance, Anil-run RNRL and state-owned power company NTPC, are about how natural gas should be priced in India and how it should be used. Very soon, relatively clean natural gas will become a major fuel for India, so it’s important to settle these things now.

The world over, two industries, power and fertiliser, use up four-fifths of all gas production: it’s likely to be the same here. So, India’s growth will depend on what we pay for fuel and power.

Yet over the last three years, as the Ambani-NTPC gas lawsuits have wound their way through courts, it’s become clear that the ministry of oil and gas, which is supposed to implement policies for a transparent and efficient market for fuel, has done the opposite. Its reforms remain half-baked, its regulation is opaque and furtive. So India’s energy sector that has so much promise remains an investors’ nightmare.

In 2004, NTPC floated a global tender to buy 12 million cubic metres of gas to run some power plants. RIL won the bid, for a price of $2.34 per unit. Within RIL, it was also decided that a subsidiary called RNRL would get to buy more than double the amount of gas contracted by NTPC, at the same price. The Ambani brothers split a year later, RNRL went to Anil and both these agreements ran into trouble. The oil ministry stepped into the breach and got into the act of ‘fixing’ gas prices, which were earlier supposed to be determined through bids.

The gas-price drama started four years ago and apart from the oil ministry, eventually sucked in a committee of secretaries, the prime minister’s economic advisory council and finally a group of ministers. The outcome: a price of $4.2 per unit, but only for gas from RIL’s D6 basin in the Bay of Bengal.

But how will gas produced elsewhere in other exploration blocks be priced? Nobody, least of all the oil ministry, is interested. That’s odd, considering that over the last 10 years the oil ministry has auctioned off about 55% of India’s basins, in seven rounds of exploration bids. Over 100 discoveries have been made. Two players have emerged dominant, with nearly 80% of the auctioned plots: RIL with 33 fields and state-owned ONGC with 59.

India’s gas pricing rules are a mess. Small amounts of gas discovered by state-owned companies more than 10 years ago are sold for around $2 or less to fertiliser companies. The NTPC-RIL-RNRL contract price is $2.34; the government mandated price for the same stuff is $4.2. If you want to import gas that comes as liquids in tankers, you pay a floating rate that can go as high as $8 per unit. And we’re now waiting to see how all the other, non-D6 gas that’ll bubble up from newly-minted blocks will be priced.

Exactly how much oil and gas has been discovered in all those blocks? At what rate are they expected to flow? For how long? And how much of the claimed discoveries.

have been verified by the oil ministry? Nobody outside the ministry really knows. The Directorate General of Hydrocarbons (DGH), the ministry’s watchdog for exploration, provides no detailed numbers.

The DGH is also supposed to make sure that developers don’t inflate their investment claims in their blocks, something that’ll eat into taxpayers’ share of fuel profits and affect the price of gas. Again the DGH comes up in poor light: there’s little or no public data about investments made in most blocks and how they were approved. And naturally, there’s a dispute over how the DGH allowed RIL to nearly quadruple its investments while the volume of gas to be produced doubled.

The DGH claims that its investment approval has been vetted by the government’s auditor, the Comptroller and Auditor General (CAG). But the CAG says it hasn’t been able to complete its audit for two years. Sure, it asked RIL for some data sometime ago, but RIL is a private company. Why should it hand over any data to the CAG, which is supposed to audit only government companies?

The state of India’s energy regulation — and the mess it’s landed the sector in — has got policymakers worried. Last month the Planning Commission, headed by Montek Singh Ahluwalia, warned that government-administered fuel prices have driven potential investors, and competition, out of the fuel retail business.

It worried about the mess in gas pricing, but came up with a solution: till the end of 2009, while gas supplies remained below demand, regulate prices. Thereafter, as supplies increase over the next two years or so, “pricing of gas ... including from new discoveries, should be left to competitive markets.”

Yet, while the Commission spoke of regulation, it fretted about the existing state of the energy watchdog: “It is essential for the DGH to be strengthened and made independent of the ministry. There is an urgent need to have an independent regulator for both upstream and downstream sectors to ensure that markets function in a competitive manner.”

Having said that, the Commission added: “This recommendation has not been implemented by the ministry. The DGH, the upstream regulator, is not completely independent of the ministry, which is exercising a strong control over it.”

India needs competition and investments in its fuel economy. But to get there, it needs clean and transparent rules to play by, rules that are perceived to be fair by everyone. Otherwise, no serious overseas investor will bet big on exploring here. After 10 years of trying to drum up interest in new oil and gas ventures, not a single large overseas oil player operates a big exploration project in India: no ExxonMobil, no Shell, no BP, Total or ENI.

Controversy and lawsuits will continue to haunt the sector. Today RIL, RNRL and NTPC are at each others’ throats. Tomorrow it’ll be someone else. The oil and gas ministry claims that energy is a national asset. It is. And that’s why taxpayers deserve a better deal than what they’ve got so far.

http://economictimes.indiatimes.com/
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